The transmission mechanism of new and traditional instruments of monetary and macroprudential policy

On 13 and 14 October 2016, the National Bank of Belgium held its ninth academic conference on the theme “The transmission mechanism of new and traditional instruments of monetary and macroprudential policy”. The article discusses a range of conference outcomes, grouped into three themes. The first section focuses on the impact of monetary policy measures on financial stability. These spillover effects of monetary and macroprudential policies are important for deciding on an efficient allocation of objectives and instruments in the two policy domains. Section 2 covers the transmission and efficiency of (macro)prudential instruments. Changes in prudential capital requirements are found to have steeply diverging effects depending on the characteristics of individual banks. The institutions at greatest risk are effectively also the most restrained by these measures, while any undesirable costs arising from lending restrictions were found to be limited. The third section summarises the findings on the transmission of unconventional monetary policy measures. Here too, the relevant instruments have managed to reach the financial institutions that most needed the additional funding. There are few signs that such capital injections are encouraging excessive risk behaviour, even at less robust institutions. A more rigorous regulatory framework may have helped to ensure this stability.